Lottery bonds are the government bonds in which some of the individual bonds are randomly selected for getting a higher redemption value than the bond’s normal face value.
Like normal fixed rate bonds, lottery bonds have a fixed, long maturity period and provide interest (coupons) regularly. The principal amount will remain the same but the buyer will get interest in the form of coupons periodically.
All the bonds in a particular issue are given different numbers. Only some bonds from an issue are redeemed and out of which a few bonds are randomly picked up so as to get a higher redemption value. However, the buyer will get coupons regularly and interest in case of un-redeemed bonds.
For example: if a government issues 15 year bonds in a issue comprising of 15000 individual bonds worth 100 dollar each. Out of the 15,000 individual bonds, only 8000 bonds are redeemed and out of which around 1000 bonds would be redeemed at a higher value for say 110 dollar each.
Governments in many European countries like France and Belgium have issue lottery bonds. In United States, only National savings Corporation can sell Lottery bonds.
In the United Kingdom, the government issues premium bonds which are just like lottery bonds in the sense that the government takes out a draw every month and randomly picks up a number which can get a prize money of a higher value than its face value. The best thing about the prize money is that it is tax free. However, these bonds do not have a maturity period and also neither do they provide interest (coupon) regularly. But these bonds can be redeemed at its face value any time. Also, even if the bonds possessed by the buyer have got the prize, the bond will not be redeemed and will still be a part of the draw every month.
Governments launch lottery bonds especially during the time when investments are very less and they feel that a particular issue will not be sold. Since the governments decide before hand that how many bonds from a issue will be redeemed and how many will be redeemed at a higher value, they are aware of the cost of borrowing and are prepared well in advance.
On the other hand, customers of the lottery bonds do not know till the end that their bond will be redeemed or not. However, these bonds still find takers from people who hope that they might get the lottery!!
|50||Credit score 720 - 900|
|40||Credit score 680 - 719|
|30||Credit score 620 - 679|
|10||Credit score 580 - 619|
|20||Owner(s) owns a home|
|5||For each year Applicant has been an Ohio Lottery Retailer|
|-5||For each NTF in the last 5 years|
|Score||Rater Per Thousand||Program Name|
|90+||$7.50||Premium Retailer (low risk)|
|<50||$20.00||Non-Standard Retailer(high risk)|
|Blanket Bond Program|
|Number of Locations||2 or More|
|D & B Rating||Minimum BB in Financial strength
($200,000 - $299,000)
|Commercial Credit Score||Either 1 (High) or 2 (Good)|
|Rate per $1,000||$7.50|